Negligence – Solicitor – Purchase of business – Claimant purchasing lease of public house along with goodwill of business – Claimant complaining that business failing because vendors moving to another pub nearby and taking clientele with them – Whether defendant solicitor negligent in failing to advise claimant to seek covenant restraining vendors from operating competing pub – Whether causing loss to claimant – Claim dismissed
In early 2011, a married couple instructed the defendant firm of solicitors to act for them on the purchase of a lease of a public house in Chudleigh, Devon. The lease was for a term of 15 years from October 2005 and had been granted by the brewery company which owned the pub. The couple reached an agreement with the existing leaseholders to purchase the pub business for £130,000, with that price to include the lease, fixtures and fittings and goodwill. The couple took no valuation or other advice before agreeing that price, which largely represented the goodwill element of the business. They were attracted to the premises because of the relatively high turnover built up by the existing leaseholders over the previous five years and, although they had not run a pub before, they had previously worked in the hospitality business and they believed that they would be able to retain the vendors’ clientele with a different and more upmarket food offering. They were keen to complete the purchase quickly in order to take advantage of increased custom over Easter, Mother’s Day and the May bank holidays.
The claimant company was incorporated as the vehicle for the acquisition and the purchase was completed in April 2011. The premises produced a poor return for the claimant and, in July 2012, it sold the business for only £69,950. It attributed its lack of success to the fact that one of the former leaseholders, who had previously acted as the chef at the premises, had taken over another pub in a nearby village and taken much of the clientele with him.
In proceedings against the defendant, the claimant contended that the downturn in business would have been prevented had the defendants advised, when it was purchasing the premises, that it should require a covenant restraining the former leaseholders as vendors from operating a competing public house within a radius of five miles for a period of two years. It contended that the defendant had been negligent in failing to advise of the need for such a covenant and of the risk to the business if one was not obtained. The defendant argued that such advice fell outside the scope of its duty as a commercial conveyancing solicitor and also denied causation.
Held: The claim was dismissed.
(1) Unless instructed expressly, a solicitor did not normally have a duty to advise on the commercial wisdom of a transaction, particularly where the client was experienced in business. It was always relevant to consider what the solicitor was asked to do, the nature of the transaction and the standing and experience of the client. The solicitor’s duty had to be measured against its retainer and it was under no obligation to go beyond its instructions; however, the principle that a solicitor’s duty was strictly circumscribed by its instructions should not be taken too far and if, in the course of carrying out the task for which it was retained, the solicitor became aware of a risk or potential risk to the client, it was under a duty to inform the client. That did not involve the solicitor going beyond the scope of its instructions but simply involved it reporting back to the client on issues of concern of which it learned as a result of, and in the course of, carrying out its express instructions: Gabriel v Little [2013] EWCA Civ 1513, Reeves v Thrings & Long [1996] P&LR 265; [1993] EGCS 196 and Credit Lyonnais SA v Russell Jones & Walker [2002] EWHC 1310 (Ch); [2003] PNLR 2; [2002] 2 EGLR 65 applied.
Applying those principles to the facts of the case, the defendant had no duty to advise the claimant, or the couple who owned it, of the commercial risks inherent in the transaction but it should, nonetheless, have noticed the absence of any covenant in restraint of competition and drawn that absence to their attention. Its failure to do so was negligent and a breach of contract.
(2) However, the claimant had not shown that the defendant’s breach had caused its loss. It was unable to establish, on the balance of probability, that it would not have proceeded with the purchase had the advice been given. Even assuming that the burden of proof shifted to the defendant once a breach was established, so that it was for the defendant to rebut the presumption that its negligence was causative of the loss, that burden was discharged on the facts of the case: Levicom International Holdings BV v Linklaters [2010] EWCA Civ 494 considered. The couple had been determined to proceed with the transaction as quickly as possible. They had been confident in their own minds and certain that they would make a success of the pub. They had taken no advice from any professional valuer in respect of either the business or the premises before making their offer to the vendors, but had simply wanted to complete their acquisition as quickly as possible in order to take advantage of the Easter and Mother’s Day festivals and the May bank holidays. Had the defendant drawn their attention to the absence of any covenant by the vendors they would nevertheless have proceeded with the acquisition at the same pace. They would neither have tried to negotiate for a covenant nor withdrawn from the purchase since they would not have regarded any business run by the vendors as competition to the different kind of business which they were intending to run at the pub. On the evidence, the failure of the premises under the claimant’s operation was caused by the fact that the old clientele did not like the new offer or the prices and the claimant did not attract the new clientele for which it had hoped.
Gavin Hamilton (instructed by Lyons Davidson, of Bristol) appeared for the claimant; Anthony de Freitas (instructed by Bond Dickinson LLP, of Bristol) appeared for the defendant.
Sally Dobson, barrister